Diamond Capital, a private equity firm, plans to invest 6Million USD in Scana Of

Question

Diamond Capital, a private equity firm, plans to invest 6Million USD in Scana Office, a startup tech firm. Diamond aims for a 50 percent annual rate of return on this risk level of investment. This investment is viewed as a 4 year project for Diamond. Year 4 Digital Office EBITDA is estimated at 8million USD. Scana Office will be 100% equity financed. An EBITDA multiple of 6 is specified by Diamond to be used in valuing Scana Office. Calculate the ownership % Diamond should require, given the 50% target rate of return.

Explanation / Answer

50% target return

value = 6*(1+50%)4 = 30.375 required after 4 years

Value of the scana after 4 years = multiple * EBITDA = 6 * 8 = 48 million

% of ownership = 30.375 / 48 = 63.2813%

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.